Monday Morning Cup of Coffee

A look at stories across HousingWire’s weekend desk…with more coverage to come on bigger issues: While there is no single remedy to solving the housing crisis, Laurie Goodman, a senior researcher at Amherst Securities believes that the Treasury Department’s new principal forgiveness program is a step in the right direction by attacking the real problem facing mortgage finance — negative equity. “The emphasis on principal reduction is recognition of the fact that the combined loan-to-value ratio is the most important predictor of defaults,” Goodman writes in a research note Friday. “We believe principal reduction programs, if implemented correctly, are apt to dramatically raise the success rate on modifications. Not only is this good public policy and good for borrowers, but it is very positive for the valuation of senior [residential mortgage-backed securities] RMBS securities. Goodman criticized the first incarnation of the Making Home Affordable Modification Program (HAMP) because it did not address negative equity. According to her analysis, as long as borrowers are deeply underwater, they are unlikely to pay in the long term. Thus, the re-default rate will be very high, and the dead weight costs of foreclosure have not been avoided. On the topic of negative equity, First American CoreLogic estimates that the typical US homeowner who is in a negative equity position will not experience positive equity until late 2015 to early 2016. In severely depressed markets, the typical borrower in negative equity may not experience positive equity until 2020 or later. CoreLogic added that for the foreseeable future, decline in negative equity is driven slightly more by amortization than by home price appreciation trends. CoreLogic projects more than 11.3m — or 24% — of all residential properties with mortgages, had negative equity at the end of the fourth quarter of 2009. The chart above projects the amount of negative equity using CoreLogic short-term forecasts and a baseline view of long-term price trends nationally through 2020. For the typical underwater borrower in the US, it will take until late 2015 or early 2016 for negative equity to disappear. The Standard & Poor’s (S&P)/Case-Shiller home price index continued to inch up over the past several months on a seasonally adjusted basis, proving to be the outlier among nearly all other measures of home prices. An analyst at Barclays Capital (BarCap) expects a 0.3% month-over-month drop in housing prices when the latest report comes out Tuesday. If the projections are correct, this would translate into a slowdown in the year-over-year pace of decline to -1.3% from -3.1% in December, BarCap said. In addition, BarCap’s Michelle Meyer projects construction spending to decline 1.2% in February, following a 0.6% drop in January and leave expenditures down about 10% year-over-year. The decline will be across all construction sectors, but driven by the nonresidential sector. Inclement weather in parts of the Northeast and South played a factor in February’s decline, consistent with the drop in housing starts in these regions, Meyer wrote. Regulators closed four banks Friday at a total cost of $320.3m. The Georgia Department of Banking and Finance closed Carrollton, Ga.-based McIntosh Commercial Bank. The four McIntosh Commercial branches reopened as branches of West Point, Ga.-based CharterBank. The bank did not pay the FDIC a premium to assume all of the McIntosh Commercial’s $343.3m in deposits and agreed to purchase essentially all of the failed bank’s $263.1m in assets. The FDIC estimates the cost to the deposit insurance fund (DIF) will be $123.3m. The Arizona Department of Financial Institutions closed Phoenix-based Desert Hills Bank. The six Desert Hills branches reopened as branches of Westbury, NY-based New York Community Bank, which did not pay the FDIC a premium to assume all of the $426.5m in deposits of Desert Hills Bank and agreed to purchase essentially all of the failed bank’s $496.6m in assets. The cost to the DIF is $106.7m. The Office of the Comptroller of the Currency (OCC) closed Cartersville, Ga.-based Unity National Bank. The five branches reopened as branches of Little Rock, Ark.-based Bank of the Ozarks, which did not pay the FDIC a premium to assume all of the $264.3m in deposits of Unity National Bank and agreed to purchase essentially all of the failed bank’s $292.2m in assets. The cost to the DIF is $67.2m. The Office of Thrift Supervision (OTS) closed Key West, Fla.-based Key West Bank. The one branch reopened as a location of Conway, Ark.-based Centennial Bank, which will pay the FDIC a premium of 0.5% to assume all of the $67.7m in deposits of Key West Bank and agreed to purchase essentially all of the failed bank’s $88m in assets. The cost to the DIF is $23.1m. Write to Austin Kilgore.

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